SWTYT New Logo

Category: Newsletter

Categories
Ideas & Insights Newsletter Tax

Stamp Duty – Special Voluntary Disclosure Programme

Stamp Duty-cover

Newsletter

Key Takeaway

  • Responsibility for stamp duty assessment is now placed on taxpayers.
  • Taxpayers are afforded the chance to regularize unstamped instruments and seek remission of penalties.
Many businesses are unaware that certain agreements — including loan agreements, service contracts and shareholders’ agreements — may be subject to stamp duty. The introduction of the Stamp Duty Self-Assessment System and the Special Voluntary Disclosure Programme makes it timely for businesses to review their documenta- tion and ensure compliance.

Stamp duty is a tax imposed on certain of written instruments specified in the First Schedule of Stamp Duty Act 1949 (“SA”) and not on the underlying transactions themselves.

There are two main categories of stamp duty:

  1. Ad valorem duty – calculated based on the type and value of the instrument; and
  2. Fixed duty – imposed at a prescribed amount, typically starting from a nominal sum of RM10 per instrument.

STAMP DUTY SELF-ASSESSMENT SYSTEM (SDSAS)

Effective from 1 January 2026, the Inland Revenue Board of Malaysia (“IRBM”) has implemented the Stamp Duty Self-Assessment System. The implementation will be carried out in phases as follows:-
Phase Effective Date Type of Instruments
Phase 1 From 1 January 2026 Instruments or agreements relating to rentals or leases, general stamping and securities.
Phase 2 From 1 January 2027 Instruments for transfer of property ownership.
Phase 3 From 1 January 2028 Instruments or agreements not covered under Phase 1 and Phase 2.

RESPONSIBITIY OF DUTY PAYERS

Under SDSAS, taxpayers are responsible for determining, calculating and declaring stamp duty obligations. For instruments executed in Malaysia, they must be stamped within 30 days of the date of execution. For instruments executed outside Malaysia, the instrument must be stamped within 30 days from the date it is first received in Malaysia.

Taxpayers are also required to retain the stamped instruments and all related supporting documents for a minimum period of seven (7) years to ensure proper compliance and to facilitate any audit by IRBM.

PENALTIES

Late Stamping
Period of Delay in Stamping Penalties
Not exceeding 3 months RM50 or 10% of the duty amount (whichever is higher)
Exceeding 3 months RM100 or 20% of the duty amount (whichever is higher)
Executing or Signing Unstamped Documents
Any person who executes or signs an instrument that has not been duly stamped may be liable to a fine of not less than RM1,000 and not exceeding RM10,000

SPECIAL VOLUNTARY DISCLOSURE PROGRAMME (“SVDP”) FOR STAMP DUTY

On 28th January 2026, the IRBM has announced a Special Voluntary Disclosure (‘SDVP’) for stamp duty and published a set of Frequently Asked Questions (“FAQs”) in relation to SVDP on its website.

During SDVP period from 1 January 2026 to 30 June 2026, all instruments executed from 1 January 2023 to 31 December 2025 may qualify for penalty exemption under Section 47A(2), Stamp Act 1949, subject to relevant conditions.

Key Points from the FAQ

  1. Instruments executed between 1 January 2023 and 31 December 2025 are eligible for SVDP 2026, provided that stamping and payment of stamp duty payment are completed between 1 January 2026 and 30 June 2026;
  2. Eligible for SDVP 2026:-
Stamping Submission Date Status of Stamp Duty Payment Status of Penalty
Before 1 January 2026 Fully paid (including penalties) Not eligible for SDVP
Before 1 January 2026 No payment made within the SVDP period Penalty not waived
1 January 2026 – 30 June 2026 Payment made within the SVDP period Penalty waived
  1. No appeal application is required and penalty will be automatically waived once the stamp duty is paid between 1 January 2026 to 31 December 2026;
  2. All instruments executed between 1 January 2023 and 31 December 2025 and stamped under SVDP 2026 will not be subject to audit. However, SVDP does not prevent the IRBM from auditing other instruments not disclosed under the SVDP;
  3. Cases involving fraud are excluded from the SVDP programme.
The FAQs are available in Bahasa Malaysia and can be downloaded from the IRBM’s official website:-
FAQs

Action Points for Business

Businesses should consider taking the following steps:
1. Conduct an Internal Review of Documents
Businesses should review all contracts and written instruments executed between 1 January 2023 and 31 December 2025 to determine whether they are subject to stamp duty but have not been stamped.

Common examples include:
  • Rental or tenancy agreements
  • Service agreements
  • Loan agreements between companies or related parties
  • Shareholders’ agreements
  • Security documents (charges, debentures, guarantees)
  • Memorandum of understanding (MOU) with binding terms
  • Settlement agreements

2. Identify Unstamped or Late-Stamped Instruments
Businesses should identify documents that:
  • have not been stamped, or
  • were stamped after the statutory deadline.

These may qualify for penalty exemption under the SVDP if disclosed within the programme period.

3. Take Advantage of the SVDP Window
Where unstamped instruments are identified, businesses should submit the documents for stamping and pay the applicable stamp duty before 30 June 2026 to enjoy full penalty waiver.

4. Strengthen Internal Compliance Procedures
With the implementation of SDSAS, businesses should implement internal procedures to ensure that:
  • new agreements are reviewed for stamp duty implications;
  • stamping deadlines are monitored; and
  • supporting documentation is properly maintained.

5. Seek Professional Advice Where Necessary
Businesses that are uncertain whether a document is subject to stamp duty should seek professional advice, as incorrect stamping or failure to stamp instruments may result in penalties.
If you would like assistance in reviewing your agreements or determining whether any instruments require stamping, please feel free to contact us.

Download PDF

EN
CN
JN
Subscribe
Categories
Ideas & Insights Newsletter Tax

e-Invoicing Updates

e-invoicing-cover

Newsletter

Key Takeaway

  • Phase 4 e-Invoicing: 12-Month Transition Period
  • Special Concession for the Construction Materials Sector

A. 12 - MONTH TRANSITIONAL PERIOD (1 JANUARY – 31 DECEMBER 2026)

As you are aware, businesses with annual turnover between RM1 million and RM5 million fall under Phase 4 of the e-Invoice programme and is required to fully implement e-invoicing effective from 1 January 2026.

With reference to the Media Release issued by Inland Revenue Board of Malaysia (“IRBM”) dated 5th January 2026, the Government has announced a 12-month interim relaxation period for businesses under Phase 4, extending the previously announced 6-month timeline.

With that, the interim relaxation period for such businesses has been extended to 1 January 2026 to 31 December 2026. What is important to note is that this is not a postponement of the requirement for businesses under Phase 4 to be fully-compliant with the e-Invoice system – it is merely a deferment. During this period, businesses under Phase 4 will still be required to comply with the conditions spelt out in the IRBM’s e-Invoice Specific Guidelines, for e-Invoice compliance during the interim relaxation period.
During the interim relaxation period which spans 1 January 2026 to 31 December 2026, business under Phase 4 are permitted to do the following:

a. Issue consolidated e-Invoices for all activities and transactions, including for industries or activities listed under Section 3.7 of the Specific Guidelines on e-Invoices. Issuance of consolidated e-Invoices is also permitted even if there is an e-Invoice request from the buyer;

b. Issue consolidated self-billing e-Invoices for all self-billing situations as outlined under Section 8.3 of the Specific Guidelines on e-Invoices; and

c. Allow any transaction description to be entered in the “Product or Service Description” field.

During the transition period, the IRBM has announced that they will not impose penalties for any non-compliance with the e-Invoice requirements, provided that the taxpayer complies with the rules stated above.

B. SPECIAL CONCESSION: CONSTRUCTION MATERIALS SECTOR

Effective 1 January 2026, the government also agreed to allow taxpayers from the wholesale and retail of construction materials sector to issue consolidated e-Invoices. However, e-Invoices are still mandatory if they involve transactions exceeding RM10,000 or more or when there is a request from the buyer to obtain an e-Invoice.
For more details please refer to the link below:-
Media Release from IRBM dated 5 Jan 2026

How We Can Help

At ShineWing, we provide a wide spectrum of services to support your successful implementation of the e-Invoice system in Malaysia and compliance of its laws and guidelines, among which, include the following:

Regulatory Guidance

Supporting businesses in interpreting and complying with IRBM’s e-invoicing requirements, including IRBM guidelines, statutory deadlines, and documentation standards to ensure full tax compliance..

Ongoing Support

Providing continuous maintenance, governance, and updates to keep e-invoicing solutions aligned with evolving IRBM regulations, while offering training and advisory to sustain compliance and operational efficiency.
Should you have any questions or require any assistance on the above, please do not hesitate to drop us an email or call us.

Download PDF

EN
CN
JN
Subscribe
Categories
Ideas & Insights Newsletter Transfer Pricing

New 2023 Transfer Pricing Rules

New-2023-TP-Rules

New 2023 Transfer Pricing Rules

TP Rules 2023

The Income Tax (TP) Rules 2023 supersedes the rules that was released in 2012 and is effective from the year of assessment 2023. Significant changes were made with the intention to boost compliance and provide taxpayers with more clarity with regards to TP compliance. Some of the important changes that affect the way TP documentations (“TPD”) will be prepared moving forward is as follows:
2023 table newsletter

TP Rules 2023 – Detailed Description

transfer pricing rule 1
  • “Contemporaneous” TPD must be prepared before the filing of the tax return for the relevant year of assessment.
  • While this is not a new requirement, it has now been made clearer in the rules and it allows the Tax Authorities to penalize taxpayers who did not prepare the TPD in a timely manner.
  • The requirement to include the date of completion in the TPD is in line with the Tax Authorities’ intention to increase compliance and to have concrete written evidence as to whether the TPD was prepared before or after the filing of the tax returns.
transfer pricing rule
  • Contemporaneous Full TPD must now include additional information on the MNE Group that is relevant to the taxpayer’s business in Malaysia. Alternatively, the taxpayer can attach the Master file prepared by the Group or ultimate holding company with the Local TPD.
  • Previously this requirement was only applicable for Group of Companies that is required to submit the Country-by-Country Report.
  • In the absence of any Master File, the local taxpayer will have to request for this information from the ultimate parent company to include in the Local TPD.
  • The Tax Authorities have also included a detailed list of information and/or documentation to be included or attached in the Local TPD.
  • Based on the above, taxpayers must indicate in the TPD if any of the information or documents required are not applicable to the taxpayers. Failure to do so will result in an incomplete TPD.
transfer pricing rule
  • Previously the Guidelines requests taxpayers to select the TP method on a hierarchy basis which means that the Comparable Uncontrolled Price (“CUP”) must be considered first before the other methods on the list.
  • However, now the requirement is that the best method is selected and can be supported by explanation and sufficient reasoning to justify the selection.
  • There is also a clause that allows the Director General to disregard the taxpayer’s selected method and replace with a different method if they are the opinion that it is not the most appropriate method.
transfer pricing rule
  • The Tax Authorities general practice or expectation previously was for taxpayers to achieve results that is above the median of the benchmarking analysis or to make an adjustment to the median of the benchmarking.
  • The new rules have included a definition for the arm’s length range from 37.5 percentile to 62.5 percentile and that Companies’ who fall within the range may be regarded as arm’s length.
  • However, taxpayers should be aware that the Director General has the power to make any TP adjustment to the median or any other point above median and within the arm’s length range if there is reason to believe that the comparable companies selected is not suitable.
transfer pricing rule
  • The Director General may allow for use of data from the review period and prior years if it can be proven that life cycles or business cycles of the property/services are not impacted by the conditions of commercial or financial relations between associated persons.
  • However, this can only be used to assist in the selection of comparable and not for the use of multiple year averages.
transfer pricing rule
  • Previously this dateline was only included in the TP Guidelines. It has not been included in the Rules as well.
  • Failure to submit the TPD within 14 days will result in penalties even if there is no adjustments made or additional taxes payable.
transfer pricing rule
  • Emphasizes the importance of the Development, Enhancement, Maintenance, Protection and Exploitation (“DEMPE”) analysis for intangible property
  • Any party that contributes to the functions above should be entitled to an arm’s length consideration, regardless of legal ownership

Key Take-aways

  • Burden of proof is on taxpayers to maintain the relevant records, documentation and calculation to justify the arm’s length nature of the inter-company transactions
  • Taxpayers need to reassess the completeness and robustness of the TPD prepared previously and make amendments where necessary
  • Even if taxpayer’s results fall within the new definition of the arm’s length range, taxpayers cannot take it for granted that no adjustments will be made in the event of an audit.
  • Taxpayers must not take lightly the importance of justifying the selected TP method as the best possible method

Download PDF

EN
CN
JN
Subscribe
Categories
Ideas & Insights Newsletter Tax

Mandatory e-Invoicing System Starting From June 2024

e-Invoice

Newsletter

Key Takeaway

E- Invoicing system to be implemented in phases beginning from 2024.
On 25th October 2022, the Malaysian Digital Economy Corporation (MDEC) signed a Memorandum of Understanding (MoU) with the Inland Revenue Board of Malaysia to implement the National e- Invoicing system. This electronic invoicing will first effect B2B transactions and will begin with pilot phase in January 2024 with selected companies.

WHAT IS e-INVOICING?

e-Invoicing is the exchange of electronic invoice documents in digital format between the supplier and the buyer. These documents or data can then be uploaded into the platform managed by IRBM. Thereafter, the data will be extracted and pre-filled into the taxpayer’s income tax form.

e-Invoice is NOT an invoice issued in PDF, HTML, JPG or other formats but a digital invoice created by the seller and transferred electronically to the buyer’s system.

WHAT ARE THE BENEFITS OF e-INVOICING?

  • Greater transparency to the tax authorities and reduce administrative cost to both tax authorities and taxpayers especially during tax audits;
  • Improve the tax compliance, more efficient financial and tax reporting;
  • Will reduce the burden of record keeping by taxpayers, as taxpayers will no longer need to keep physical copies of their receipts, invoices, and vouchers for seven years as currently required under Section 82A(1) and Section 82A(2) of the Income Tax Act 1967.
  • Savings of resources (time and salary costs) as businesses no longer to manually input data or scan invoices into their systems.

IMPLEMENTATION OF e-INVOICING:

Implementation of e-invoicing
Taxpayers are advised to get ready for the imminent implementation of e-Invoice which will affect all businesses, come January 2027. While waiting for further updates from the authorities on the technical and infrastructure requirements of implementing the e-Invoice system, businesses should now evaluate their ability of their current accounting and ERP systems to cater for the e-Invoice system as well as the relevant initiation and authorisation processes of the e-Invoice cycle, as such e-Invoice, in its stream of digital data, is a valid legal document.

Download PDF

EN
CN
JN
Subscribe
Categories
Ideas & Insights Newsletter Tax

Special Voluntary Disclosure Programme (SVDP) 2.0

blue sky

Newsletter

Key Takeaway

Special Voluntary Disclosure Programme from 1 June 2023 to 31 May 2024 by the Inland Revenue Board of Malaysia (IRBM) and Royal Malaysian Customs Department (RMCD) with a 100% waiver of penalty

Special Voluntary Disclosure Programme (SVDP) 2.0 (Direct Tax)

In the recent 2023 Malaysian Budget announcement on February 24, 2023, the Prime Minister Datuk Seri Anwar Ibrahim announced the reintroduction of Special Voluntary Disclosure Program 2.0 (“SVDP2.0”) to be carried out by both the Inland Revenue Board of Malaysia (IRBM) and Royal Malaysian Customs Department (RMCD). This program is offered to encourage taxpayers to make voluntary disclosures in reporting their FULL income and pay taxes within a stipulated period.

This newsletter focuses on the SDVP2.0 by IRBM. The guidelines on this special program will be issued by IRBM soon.

Proposed Measures of the SVDP 2.0:
The SVDP is proposed to be available for a period of 12 months, from June 1, 2023, to May 31, 2024.

Based on the proposed measures, the SVDP would cover both direct and indirect taxes. However, the SVDP2.0 does not apply to cases that are currently undergoing auditor investigation.

Download PDF

EN
CN
JN
Subscribe
Categories
Ideas & Insights Newsletter Tax

Budget 2023 Developing Malaysia Madani

Budget-2023-Developing-Malaysia-Madani

Newsletter

Key Takeaway

  1. Review of individual income tax rate and corporate income tax rates
  2. Extension of time and expansion of scope for certain tax incentives
  3. Proposed introduction of capital gains tax on the sale of unquoted shares
  4. Special Voluntary Disclosure Programmefrom 1 June 2023 to 31 May 2024 by the Inland Revenue Board (IRB) and Royal Malaysian Customs Department (RMCD) with a 100% waiver in penalty

2023 Budget Highlights

On Friday, February 24, 2023, the Honourable Prime Minister and Finance Minister, Dato’ Seri Anwar bin Ibrahim, retabled the National Budget 2023 based on the new national theme, “Membangun Malaysia Madani” (Developing Malaysia Madani).

The Budget 2023 serves as the initial phase in implementing the Malaysia MADANI Development framework and emphasizes 12 key measures organized around three pillars:

First: Inclusive and sustainable economic growth
Second: Institutional reforms and good governance to restore confidence
Third: Combating inequality through social justice

Here are the highlights of the Retabled Budget 2023 presented by Prime Minister Dato’ Seri Anwar bin Ibrahim on Friday, February 24, 2023.

The full Budget Speech is available at the following link:
https://budget.mof.gov.my/en/budget2023/

Download PDF

EN
CN
JN
Subscribe
Categories
Ideas & Insights Newsletter Tax

Malaysia Budget 2022 Highlights

Malaysia-Budget-2022-Highlights

Malaysia Budget 2022 Highlights: Strengthening Recovery, Building Resilience and Driving Reforms

Key Takeaway

  • Effective from 1 January 2022, income derived from foreign sources and received in Malaysia by Malaysian tax residents will be subject to income tax
  • For YA 2022, Cukai Makmur, a special one-off tax to be imposed on companies with taxable income of more than 100 million ringgit
  • Unutilised business losses to be carried forward for 10 consecutive YAs
  • Additional Reinvestment Allowance will be extended for 2 years until YA 2024
  • Effective from 1 January 2022, RPGT rate of an individual citizen, permanent resident and other than a company for disposal in the 6th year and onwards be reduced from 5% to 0%.
On 29 October 2021, our Finance Minister, YB Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz tabled the 2022 National Budget with the theme, ‘Keluarga Malaysia, Makmur Sejahtera’ as Malaysia enters the recovery phase of COVID-19 and makes preparation to revitalise its economy.

Numerous tax measures were introduced revolving around the three key pillars of the 2022 National Budget, namely Strengthening Recovery, Building Resilience and Driving Reforms.

This edition of our Tax Alert is prepared based on the 2022 National Budget speech and a follow-up edition will be issued to cover key tax proposals and updates, after the Finance Bill is issued.

Key Tax Proposals

Affecting Individuals

  • Tax relief on costs associated with the adoption of self-funded booster vaccines.
  • The scope for individual income tax relief for full medical check-up expenses is expanded to cover the cost of check-up or consultation service related to mental health from registered psychiatrist, clinical psychologist and counsellor.
  • In line with the new norm and work from home practices, the special individual income tax relief of up to RM2,500 on the purchase of mobile phone, computer and tablet be extended until 31 December 2022.
  • The limit of individual income tax relief for up-skilling and self-enhancement course fees will be increased from RM1,000 to RM2,000 and extended to year of assessment 2023. In addition, those who undertake courses with any professional bodies will be eligible for a tax relief of up to RM7,000. Approved courses include professional courses in accounting, finance and environmental, social and governance (ESG)-related.
  • Tax relief of up to RM4,000 for Employees’ Provident Fund (EPF) contributors is expanded to include voluntary contributions, such as those who are self-employed in the gig economy including pensionable civil servants.
  • Tax relief limit will be increased from RM250 to RM350 and the scope of relief for Social Security Organisation (SOCSO) contributions will also be expanded to cover employee contributions through the Employment Insurance Scheme (EIS).
  • Tax relief of up to RM3,000 for fees paid to registered child care centre or kindergarten is extended until the year of assessment 2023.
  • Income tax exemption on recognised e-sports tournament prize money.
  • Special individual income tax relief for domestic tourism expenses up to RM1,000 be extended until year of assessment 2022.
  • Tax relief up to RM2,500 on expenses related to cost of installation, rental, purchasing including hire-purchase equipment or subscription fees for EV charging facilities.
  • Income tax is imposed to residents in Malaysia on income derived from foreign sources and received in Malaysia from 1 January 2022.
  • Tax relief for deferred annuity premium payment be extended until the year of assessment 2025 (to be in line with the extension of the income tax relief for contribution in Private Retirement Scheme (PRS)).

Key Tax Proposals

Affecting Corporates and Businesses

  • Tax deduction to employers on costs associated with the adoption of self-funded booster vaccines.
  • Double tax deduction to companies that provide scholarships to students in institutions of higher learning:
    1. the scope of qualifying studies be expanded to all fields of study at the Technical and Vocational, Diploma, Degree including Master’s and Doctorate; and
    2. the tax incentive be extended for 4 years from the year of assessment 2022 to the year of assessment 2025.
  • Tax incentive for the Structured Internship Program is extended until the year of assessment 2025 and this incentive is also expanded for students in the Master’s Degree, Professional Certificate and Malaysian Skills Certificate Levels 1 and 2.
  • Tax deduction of up to RM300,000 on the cost of renovating and refurbishing business premises is extended until 31 December 2022.
  • For manufacturing and manufacturing-related service companies registered under Safe@Work, a further tax deduction of up to RM50,000 on rental expenses of employees’ accommodation premises will be extended until 31 December 2022.
  • Special tax deduction to the owners of buildings or business premises who provide rental reduction to tenants of at least 30% from the original rate be extended until June 2022.
  • Treatment of accumulated unabsorbed business losses:
    1. the current unabsorbed business losses that can be carried forward from year of assessment 2019 onwards be extended from a maximum period of 7 consecutive years of assessment to a maximum period of 10 consecutive years of assessment; and
    2. the accumulated unabsorbed losses up to the year of assessment 2018 that can be carried forward until the year of assessment 2025 be extended until the year of assessment 2028.
  • The Additional Reinvestment Allowance (RA) provided for the year of assessment 2020 to year of assessment 2022 be extended for 2 years until year of assessment 2024 for existing companies in Malaysia that have exhausted RA and Special RA eligibility. Such extension will make up the total period of Additional RA to 5 years.
  • Income tax exemption for organizers of arts and cultural activities as well as international sports and recreational competitions is extended for 3 years, ie. from the year of assessment 2023 until year of assessment 2025.
  • Income tax exemption on all income of Social Enterprises up to 3 years of assessment based on the validity period of accreditation approved by the Joint Accreditation Committee by the Ministry of Entrepreneur and Cooperative Development and Yayasan Hasanah.
  • One-off tax known as Cukai Makmur, companies with taxable income up to the first 100 million ringgit will be subject to income tax at the rate of 24 percent and the remaining taxable income will be subject to income tax at the rate of 33 percent for the year of assessment 2022.
  • Income tax is imposed to residents in Malaysia on income derived from foreign sources and received in Malaysia from 1 January 2022.
  • Micro, Small and Medium Enterprises (MSMEs) with a paid-up capital of RM2.5 million and below with annual sales turnover not exceeding RM50 million will enjoy income tax rebate of up to RM20,000 for each year of assessment, for the first 3 years of assessment. The establishment and operational period for new MSMEs including MSMEs that perform business activities through online platform be extended to 31 December 2022 .
  • Tax incentives for activities under Digital Ecosystem Acceleration Scheme (DESAC) is expanded as follows:
    1. Digital Technology Provider
      1. New company
        Income tax rate of 0% to 10% for up to 10 years.
      2. Existing company that diversifies in new service activities or new service segments
        Income tax rate of 10% for up to 10 years.
    2. Digital Infrastructure Provider
      Investment Tax Allowance (ITA) of 100% on capital expenditure for qualifying activities for up to 10 years which can be set-off against up to 100% of statutory income.
      (For application received by Malaysian Investment Development Authority (MIDA) from 30 October 2021 to 31 December 2025.)
  • Double tax deduction on operating expense of Anchor companies that developed local vendors under the Vendor Development Programme (VDP) and signed the Memorandum of Understanding (MoU) with the Ministry of International Trade and Industry (MITI) or the Ministry of Entrepreneur Development and Cooperatives (MEDAC) are reviewed as follows:
    1. deductions for qualifying operating expenses be increased up to RM500,000 per year of assessment;
    2. the tax incentive be extended for 5 years for anchor companies that have signed MoU with MEDAC; and
    3. deductions are given for 3 consecutive years of assessment. (For MoU signed between anchor companies and MEDAC from 1 January 2021 to 31 December 2025.)
  • The scope on the purchase of qualifying green assets and green services qualifying for Green Technology Tax Incentives be expanded to include Rainwater Harvesting System (RHS) projects, verified by the Malaysian Green Technology Corporation (MGTC). To be eligible for Green Investment Tax Allowance (GITA) or Green Investment Tax Exemption (GITE), applications must be received by MIDA from 1 January 2022 to 31 December 2023.
  • Tax incentive for individual income tax at a flat rate of 15% given to non-resident individuals holding key positions in companies investing in new strategic investments in Malaysia is extended for 1 year (for applications received by MIDA until 31 December 2022).

Key Tax Proposals

Indirect Tax

  • 100% sales tax exemption on CKD passenger vehicles and 50% on CBU including SUV and MPV extended for six months until 30 June 2022.
  • 100% stamp duty exemption on restructuring or rescheduling of loan/financing agreement extended to 31 December 2022.
  • Exemption on entertainment duty for entertainment activities in all Federal Territories until 31 December 2022. State authorities are similarly advised to provide duty exemption on entertainment activities to support the recovery of this sector.
  • Full exemption on import duty, excise duty and sales tax exemptions on electric vehicles (EVs). Road tax exemptions of up to 100% will also be given to the vehicle owners.
  • The rate of stamp duty on contract notes is increased from 0.1% to 0.15% and the stamp duty limit of RM200 for each related contract note is abolished. At the same time, brokerage services related to the trading of shares listed on Bursa Malaysia be exempted from service tax.
  • Sales tax be imposed on goods not exceeding RM500 from abroad sold online by seller and sent to consumers in Malaysia via air courier service.
  • Service tax is levied on delivery services provided by service providers including e-Commerce platforms except food and beverage delivery services and logistics services.
  • The Special Voluntary Recognition Program of the Royal Malaysian Customs Department was introduced in phases with a penalty remission incentive of 100 per cent for the first phase and a penalty remission of 50 per cent for the second phase. Tax remission will also be considered in certain cases.
  • For P2P financing made through P2P financing platform registered and recognised by the Securities Commission (SC), 100% stamp duty exemption on P2P loan/financing agreement between MSMEs and investors for P2P loan/financing agreement executed from 1 January 2022 to 31 December 2026.
  • Extension of stamp duty exemption of one year for Micro, Small and Medium Enterprises (MSMEs) that carry out merger or acquisition scheme on instruments executed on the following documents:
      1. contracts or agreements for the sale or lease of property (land, buildings, machinery and equipment);
      2. instrument of transfer and memorandum of understanding;
      3. loan or financing agreements; and
      4. the first rental agreement.
    for application of merger or acquisition received by the Ministry of Entrepreneur Development and Cooperatives from 1 July 2021 to 30 June 2022 and instruments executed until 31 December 2022.
  • Tourism tax exemption be extended for 1 year, from 1 January 2022 to 31 December 2022.

Key Tax Proposals

Real Property Gains Tax (RPGT)

  • RPGT rate on gains from the disposal of real property and shares in real property company by an individual citizen, permanent resident and other than a company in the 6th year and onwards be reduced from 5% to 0%.

Tax Administration

  • Deferment of income tax instalment payments for MSMEs for six months until 30 June 2022.
  • All businesses are allowed to amend the estimated income tax payable on the 11th month before 31 October 2022.
  • The use of tax identification numbers (or TINs) will be implemented from 2022 to broaden the income tax base.

Download PDF

EN
CN
JN
Subscribe
Company Taxes In Malaysia
Need More Info ?

Speak with our friendly team today!

Ask Us
Categories
Ideas & Insights Newsletter Transfer Pricing

Transfer Pricing Requirements And New Penalties in Malaysia

Transfer-Pricing-Requirements-And-New-Penalties-in-Malaysia

Transfer Pricing Requirements And New Penalties in Malaysia

Key Takeaway

  • Transfer Pricing Documentation is to be prepared annually
  • Changes in Form C disclosure items for related party transactions, interest expenses paid to related companies and CbyCR notification
  • CbyC Rules are applicable for companies with consolidated revenue of more than RM3 billion
  • New penalty rates have been introduced
This is a summary of the Transfer Pricing Requirements in Malaysia

Transfer Pricing Guidelines (“TPG”)

The 2012 TPG superseded the Guidelines previously issued in year 2003, and was intended to provide detailed guidance to taxpayers on how to comply with the requirements of the law under Section140A of Income Tax Act 1967 and the TP Rules 2012. The 2012 TPG is applicable to:
  • Controlled transactions between associated persons, where at least one party is assessable or chargeable to tax in Malaysia; and
  • Applies to both cross-border transactions and domestic related party transactions. The TPG need not be applied to domestic controlled transactions if it can be proven that any TP adjustments will not alter the total tax payable by both parties.
The guidelines reinforces that companies involved in related party transactions in Malaysia should prepare a TP documentation for the relevant year of assessment. While the TP documentation has to be prepared, it does not need to be submitted unless requested by the tax authorities. Companies who fall below this threshold may opt to prepare a limited scope TP documentation instead of a full scope TP documentation.
  • Companies with gross income more than RM25 million, and the total amount of related party transactions more than RM15 million; OR
  • Companies with financial assistance by related parties more than RM50 million.
A full scope report may consists of the following:
  1. Organizational structure
  2. Nature of business/industry and market conditions
  3. Controlled transactions
  4. Pricing policies
  5. Assumption, strategies and information regarding factors that influenced the price setting policies
  6. Comparability, functional and risk analysis
  7. Selection of the transfer pricing method
  8. Application of the transfer pricing method
  9. Financial information
  10. Other relevant/supporting documents

A simplified TP documentation consists of items (a), (c) and (d) as detailed below. Taxpayer is allowed to apply any method other than the five methods described in the TPG provided it results in arm’s length outcomes.

(a) Organizational Structure

  1. the taxpayer’s worldwide organizational and ownership structure covering all associated persons whose transactions directly or indirectly affect the pricing of the documented transactions; and
  2. a description of the management structure of the local entity, a local organization chart, and a description of the individuals to whom local management reports and the country(ies) in which such individuals maintain their principal offices.

(b) Controlled Transactions

  1. description of details of the property or services to which transaction relates; any intangible rights or property attached thereto, the participants, the scope, timing, frequency, type and value of the controlled transactions (including all relevant related party dealings in relevant geographic markets);
  2. names and addresses of all associated persons, with details of the relationship with each such associated person;
  3. the nature, terms (including prices) and conditions of transactions (where applicable) entered into with each associated person and the quantum and value of each transaction;
  4. an overview description of the business, as well as a functional analysis of all associated persons with whom the taxpayer has transacted;
  5. all commercial agreements setting forth the terms and conditions of transactions with associated persons as well as with third parties; and
  6. a record of any forecasts, budgets or any other financial estimates prepared by the person for the business as a whole and for each division or product separately.

(c) Pricing Policies

Details of pricing policy for each type of controlled transaction shall include:
  1. the formula adopted, including anticipated profit margin/mark-up and cost component;
  2. how the formula is applied;
  3. who determine the pricing policy & how often is the policy being revised;
  4. sample of documents to support the pricing policy; and
  5. comparability study to ensure the arm’s length price.

Income Tax (Country-by-Country Reporting) Rules 2016 (“CbyCR Rules”)

In 2017, the tax authorities issued the CbyCR Rules followed by the Labuan CbyCR Regulation, effective from 1 January 2017 and is applicable to MNE Groups with total consolidated group revenue of at least RM 3 billion. The rules state that the ultimate parent (reporting entity) would have to complete the CbyC Report and submit it to the tax authorities on or before 12 months from the last day of the reporting FY (i.e. 31 December 2021 if the tax payer’s year end is 31 December 2020).

Additionally, there is also a requirement for the Malaysian Companies to notify the tax authorities under Subrule 6(1) and 6(2) of the PU (A) 357/2016 either by disclosing the information as part of the tax returns or by submitting the manual notification form.

Malaysian parent entities and subsidiaries submitting the Form C , TR , TA , TC or TN (tax return forms, whichever is applicable) can furnish the notification by way of tax returns while companies filing Form LE & TF are required to furnish the notification using a manual notification form as follows:
Type of entity
Details
Reporting entity
[Annex B1]
The reporting entity shall notify the Director General in writing if it is the ultimate holding entityon or before the last day of the reporting FY (i.e. 31 December 2021 if the tax payer’s year end is 31 December 2021). Notification will have to include details of all Malaysian and foreign non-reporting constituent entities (Annex B1)
Non-reporting entity
[Annex C1 & C2]
The Malaysian subsidiary does not have to submit the CbyCR but they shall notify the Director General in writing of the identity and tax residence of the reporting entityon or before the last day of the reporting FY (i.e. 31 December 2021 if the tax payer’s year end is 31 December 2021). There are two types of notification for non- reporting entity as follows:

a. Notification for non-reporting entities whose reporting entity is in Malaysia
b. Notification for non-reporting entities whose reporting entity is outside Malaysia

Tax Return Form

Throughout the year from FY 2014 to FY 2021, the income tax return form has been amended to include additional disclosures as follows:
  1. Disclosure on whether tax payers carry out controlled transactions under Section 139 and 140A Tax payer is to disclose all type of transactions they are involved in with a related party and the amount. Tax payer would also have to declare if TP documentation have been prepared.
  2. Disclosure of whether the taxpayer is subject to interest restriction under Section 140C.
    Tax authorities introduced Restriction on deductibility of interest under Section 140C of the Income Tax Act 1967, effective 1 July 2019 onwards aimed at restricting the deduction of interest expense in relation to cross border transaction. The Rules are applicable to:
    • companies who have been granted any financial assistance in a controlled transaction;
    • the total amount of any interest expense for all such financial assistance exceeds RM500,000 in the basis period.
    The maximum amount of interest that is deductible is 20% of the Tax EBITDA. The balance is allowed to be carried forward.
  3. Disclosure on CbyCR
    Tax payer is to disclose if CbyCR is relevant for the Group and fill in the relevant information of the reporting entity.

Transfer Pricing Penalties and Power to Disregard Structures

Failure to furnish contemporaneous Transfer Pricing documentation

With the introduction of Section 113B of the ITA, any person who fails to furnishing a contemporaneous TPD shall be liable to the following:
  1. Fine of not less than RM20,000 and not more than RM100,000; or
  2. Imprisonment for a term not exceeding six (6) months; or
  3. Both.
      4. The new section also empowers the Director General to impose a penalty as stated in (a) if taxpayer is not prosecuted for failure to furnish TP contemporaneous documentation. Taxpayers can appeal on the decision with the Special Commissioners of Income Tax but the burden of proof is on the taxpayers.

5% surcharge on Transfer Pricing adjustments

Under Section 140A (3C), the Director General may impose a surcharge of not more than 5% of the total transfer pricing adjustments regardless if there is any additional taxes payable by the taxpayers. Any surcharge imposed shall be treated as collection tax and would not be treated as a tax payable under any other provision within the ITA.

Power to disregard structure in controlled transactions

Under S140A (3A) and (3B), the Director General will be empowered to disregard any related party transaction structure adopted by the company if he is of the opinion that:
  1. The economic substance of that transaction differs from its form; or
  2. The commercial reality of that transaction differs from the arrangement which would have been adopted by an independent party.
In these circumstances, the Director General will be allowed to make adjustments to the structure to reflect the structure that would have been adopted in a third party arrangement.

Failure to comply (after adjustments have ben issued)

Penalties will be imposed under subsection 113(2) and the TP Audit Framework 2019. The rates can range from 30% to 100% depending on whether the TP documentation is prepared contemporaneously in accordance with the requirements and submitted within 14 days.

Illustration on Penalties

Illustration on Penalties

Transfer Pricing Audit Framework 2019

For Companies who fail to comply, penalties will be imposed under subsection 113(2) of Income Tax Act 1967 (“ITA”) and the TP Audit Framework 2019. The rates from the framework are as follows, divided between normal cases and voluntary disclosure cases (“VD”):
Condition
Penalty Rate
(Normal Case)

Penalty Rate
(VD)

Understatement or omission of income
100%
100%
Taxpayer did not prepare TP documentation

50%

NA

Taxpayer has prepared and submitted the TP documentation with the VD but not in accordance to the requirements; OR;Taxpayer has prepared a comprehensive and good quality TP documentation but failed to submit within timeline provided.

30%

20%

Taxpayer has prepared and submitted a comprehensive and good quality TP documentation with the VD in accordance to the requirements; OR; Taxpayer has prepared a comprehensive and good quality TP documentation and submitted within timeline provided.

0%

0%

FAQ: Transfer Pricing in Malaysia

Transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control. The prices set for these transactions are called transfer prices.

Transfer pricing is important because it affects the allocation of income and expenses among related entities, which in turn impacts the taxable income and tax liabilities of each entity. Proper transfer pricing ensures that profits are reported where economic activities occur, preventing tax evasion through profit shifting.

In Malaysia, transfer pricing is governed by the Income Tax Act 1967 and the Transfer Pricing Guidelines issued by the Inland Revenue Board of Malaysia (IRBM). These guidelines are based on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

All taxpayers involved in controlled transactions with associated persons must comply with transfer pricing regulations. This includes both domestic and cross-border transactions.

A controlled transaction is any transaction between associated persons, including the sale of goods, provision of services, transfer of intangible property, financial arrangements, and other business dealings.

Taxpayers must maintain comprehensive transfer pricing documentation to demonstrate that their transfer prices are at arm’s length. This includes:

  • Description of the organizational structure.
  • Details of the controlled transactions.
  • Functional analysis of the parties involved.
  • Economic analysis and benchmarking studies.
  • Comparability analysis.

The arm’s length principle states that the prices charged in controlled transactions should be comparable to the prices charged in transactions between unrelated parties under similar conditions.

The IRBM has set certain thresholds for simplified compliance requirements. For instance, companies with gross income exceeding RM25 million and total related party transactions exceeding RM15 million must prepare and maintain full transfer pricing documentation.

Download PDF

EN
CN
JN
Subscribe
Categories
Ideas & Insights Newsletter Tax

Is Your Interest Tax Deductible?

Is Your Interest Tax Deductible Banner

Is Your Interest Tax Deductible?

Key Takeaway

  • Deduction rules on interest expenses incurred on loan or borrowings taken for business.
  1. Borrowing is very important for the businesses. However, the source of borrowing whether is local or overseas; the parties to whom we borrowed from; the purposes of and use for the borrowings will affect the deductibility of the interest.
  2. Therefore, the rules on interest deductions (borrowing which generate interest expenses) can be complex.

Is Your Interest Tax Deductible?

Interest Tax Graph

Download PDF

EN
CN
JN
Subscribe
Categories
Ideas & Insights Newsletter Tax

Capital Statement: Does Your Declared Income Support Your Accumulated Assets?

Capital-Statement-Banner

Capital Statement: Does Your Declared Income Support Your Accumulated Assets?

Key Takeaway

  • Tool used by the IRB to detect under-declared income
  • Rationale of the capital statement approach
  • The importance of maintaining complete records

What Is A Capital Statement?

  • The personal ‘balance sheet’ of an individual
  • It puts together all the assets and liabilities of an individual, adjusted for non-taxable income/losses and the individual’s private and personal expenses
  • One of the most effective tools used by the Inland Revenue Board (‘IRB’) to ascertain whether an individual has under-declared income in the past

Assets Scrutinised By The IRB

  • Properties
  • Motor vehicles
  • Shares and other investments (listed AND private companies)
  • Bank accounts (local AND foreign bank accounts)
  • Credit card accounts,
  • Directors’ account balances

Period Covered During An Audit/Investigation

  • Normally covers a period of the past six years

Challenges Faced By The Taxpayer

  • Loss of documents
  • Unable to recall the transactions or flow of funds

Capital Equation

capital equation

Download PDF

EN
CN
JN
Subscribe